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Carlyle co-founder David Rubenstein eyes return to Africa with ‘own money’

By Aurélie M'Bida
Posted on Wednesday, 28 April 2021 07:46

David Rubenstein at the Davos Forum, 2018. Simon Dawson/Bloomberg/Getty

David Rubenstein, co-founder of the giant US private equity fund Carlyle, speaks about the difficulties faced investing in Africa, his ambition to return with his own money, the strength of the US economy, and the disappointment of certain BRICS investments.

David Rubenstein, co-founder of the global private equity giant The Carlyle Group (nearly $250bn in assets under management), was invited to speak by the African Private Equity and Venture Capital Association, which brought together more than 350 participants from the sector for its annual conference from 20 to 23 April.

In his keynote address, Rubenstein spoke about his experience of working for nearly half a century in the global economy – including nearly 35 years in private equity.

Ready to make his comeback in Africa, the 71-year-old American billionaire looks at the state of private equity and investment opportunities across the continent and globally.

Here are some of his key points:

The dynamism of the African market is in question

Without explicitly naming the fund, Rubenstein outlined why Carlyle had stopped making direct investments in Africa a year earlier. He also explained that he had transferred the management of the $700m in assets of his Carlyle Sub-Saharan Africa Fund vehicle to former managers of the fund who have recently joined together to create Alterra Capital Partners.

In Africa, “…clearly there have been challenges”, says Rubenstein, pointing to US and European capital redeployed to developed markets when Covid-19 came along, as well as existing economic problems. He says Africa’s potential has “lived up yet to the expectations”, the returns have not been as attractive as some people thought they would be, confirming speculation that the US private equity giant has pulled out from sub-Saharan Africa.

Alongside this, are the hurdles that many investors on the continent have to deal with. “Africa has more than 50 countries. Different currencies, different regulations… So it’s been more challenging develop teams with the expertise”.

Return announced?

Despite this, he believes that the situation could change soon.

“I am very bullish going forward that this situation will turn around”, says Rubenstein. “I’m a little reluctant to tell people too much about why I am going to be personally investing more money of my own in Africa, because I don’t want everybody to rush in and all of a sudden build up the prices.”

“Of all the private equity dollars invested in the world, any given year, probably about 1% or so is invested in Africa, and therefore there’s less competition”, he says.

He hopes that within a year the Covid-19 crisis will have passed and that it will be possible for him to “go to Africa and meet with the continent’s private equity investors in person.”

Rubenstein bases his decision on the belief that prices will rise and that private equity in Africa will improve dramatically by the end of the health crisis. “You’ve got a very young population, you have a high growth continent where the GDP growth rates are pretty high, and most of the countries and I expect will continue to be high. As a general rule of thumb, government and regulatory interference with private equity is relatively modest compared to some other countries.”

Rubenstein – who is worth $3.8bn, according to Forbes – has entrusted the day-to-day management of Carlyle to Glenn Youngkin and Kewsong Lee since 2018. Declaration Partners LP, his family office, manages his assets and investments.

The US as locomotive

During his speech to an audience of mostly African private equity investors, Rubenstein also spoke at length about the climate in the US, where the economy is “doing reasonably well,” says the former lawyer who worked on Capitol Hill as a senior adviser to the US Senate Judiciary Committee.

“Because of the enormous stimulus that the US Congress and the President of the United States have put forward, the United States economy is likely to grow this year at 5-6%, which is very, very high growth for the United States economy of our $21 trillion”, he says. He also points to the country’s low unemployment, which is below 6%, and controlled inflation (below 1.5%).

Through it all, “the private equity industry, the financial services industry and the technology industry are making as much money as they ever have and are doing well” this year, says Carlyle’s non-executive chairman.

Rubenstein is a great believer in the “transformative” potential of the new US president on the country’s economy “who, at 78, is not afraid of not being re-elected.” Regarding private equity, strictly speaking, he says that “the sector is stronger today than [he] has ever seen it.”

Raising new money during the Covid-19 pandemic “has not been difficult for those with a track record” he says, but rather only for those who don’t have $20bn plus track records. “The industry moved to remote working quite readily”.

Rubenstein praises “the SPAC (Special Purpose Acquisition Company” as a way of facilitating exits. “I suspect the slowdown will probably continue for a while as people digest the enormous number of SPAC opportunities and SPACs that have already gone public”, he says.

Europe improving, BRICS struggle

Outside of the US, the private equity sector in other developed parts of the world has also managed to make a name for itself. Many funds and venture capital firms may eventually look at the African continent, among others – or are already looking at it.

According to Rubenstein, Europe in particular has done quite well. “European private equity is probably not as robust as US private equity, but it’s doing pretty well. I would say the returns are much better than I would have thought at this stage, given the state of Covid in Europe.”

However, the Carlyle co-founder’s enthusiasm diminishes when he talks about the four largest emerging markets that make up the BRICS (excluding South Africa). While China and India are “great places to invest in”, Brazil has not been “as robust as we thought it would be,” he says. As for Russia, it “hasn’t proven to be a country for Western private equity, but is now very robust and really looking to invest.”

According to Rubenstein, Latin America and the Middle East have not lived up to the private equity industry’s expectations and there are not many opportunities for investment there.

Family offices are looking at emerging markets more aggressively than before because prices are very high now in the US and in mature markets.

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